Olympia bucks housing trend

Olympia bucked a downward trend in housing last year by issuing more single-family residential building permits in 2009 than in 2008, something the county and its other largest jurisdictions could not match, according to building-permit data compiled by The Olympian.

Although the number of single-family building permits issued by the city last year still doesn’t equal some past levels, it’s an encouraging sign for South Sound builders this year after a downturn in the housing market that started in fall 2006.

Olympia outpaced the county, Lacey, Tumwater and Yelm by nearly doubling the number of single-family permits it issued in 2009 from 2008.

The single-family residential permit data show:

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Although the volume of permits was higher in the county and Lacey last year, those figures not only are much lower than the 2008 totals but are well off the highs achieved during the housing boom. In 2006, 1,200 single-family residential building permits were issued in Lacey, and 842 were issued by the county in 2007.

The city issued more single-family permits last year likely because some builders generated more sales by building smaller, more affordable houses, Olympia building official Tom Hill said. As an example, he cited the Westchester Village plat, a new development off Division Street in west Olympia that has been able to market its houses to first-time buyers. Rather than build a 2,500- to 3,000-square-foot house, sizes are now in the 1,200- to 1,500-square-foot range, Hill said.

Westchester Village is being built by South Sound builder Ron Deering. Deering acknowledged this month at an Olympia Master Builders meeting that he has adapted to the slower housing market.

“Pretty much everything is under $300,000,” Deering told the audience.

Deering, along with South Sound home builders Rob Rice of Gemini Corp. and Scott Bergford of Scott Homes, were part of a panel discussion on the housing market at the meeting.

Builders are adapting to more than just smaller houses and lower prices, Rice said.

“Everyone has had to change the way they do business and look at their costs,” he said. “All the rules are different. Whether it’s dealing with lenders or suppliers, everything has changed.”

Rice said tighter lending standards will remain a challenge for builders this year, as will the number of undeveloped lots on the market, which puts downward pressure on prices.

“There are so many lots being flooded on the market right now that you can buy lots at or less than the cost of production,” he said. “Land values have essentially gone to zero.”

“Until we move through the glut of lots, it’s going to be tough out there,” Rice added.

Some of those undevelop- ed lots are flooding the market as a result of the foreclosure process, such as Cyrene, a Tri Vo development in west Olympia, which has about 130 undeveloped lots, Hill said. Cyrene is among a number of Vo develop- ments that are in foreclosure, The Olympian reported this month.

Rice and Deering said 2009 was an OK year for them, while Bergford of Scott Homes said the past few years have been strong, and this year is off to a good start.

Bergford builds custom “green” homes and has found a niche among baby boomers who want a house that is more environmentally friendly. The challenge for him is dealing with lower-than-expected property appraisals for the upper-end product he builds, he said.

Scott Homes spent about $1 million for one custom house, then watched as the property was appraised for about half that amount, or $648,000. Because lenders base loans on the appraised fair market value of the property, Bergford’s client suddenly had to come up with the additional money needed to cover the money spent to build the house. Bergford’s client could cover the shortfall, but a lower-than-expected appraisal could be a challenge for a typical home buyer.

“My particular niche lends itself to baby boomers, but for a young family there is no way,” Bergford said.